Cortex Business Solutions deserves a second look, says PI

Cortex Business Solutions (Cortex Business Solutions Stock Quote, Chart, News: TSXV:CBX) is a survival story that should be back on investors’ radar screens, says PI Financial analyst David Kwan.

In a research report to clients today, Kwan initiated coverage of Cortex with a “Buy” rating and a one-year price target of $4.00, implying a return of 86 per cent at the time of publication.

Kwan says he looked at Cortex several years ago and determined that it wasn’t a good investment opportunity. But in his refreshed search for undervalued Canadian techs, he says the company came back on his radar screen and what he found was a dramatically improved entity on a number of fronts.

Calgary-based Cortex operates an electronic trading partner network that eliminates the manual paper-based processing of documents such as field tickets, purchase orders, and invoices.

The PI analyst says new Cortex CEO Joel Leetzow has put Cortex in a position for success, with a new and improved cost structure, a debt free balance sheet, and a relatively stable revenue base.

Although he notes that a significant portion of the company’s revenue comes from the energy sector, Kwan points out that management is focused on new verticals such as sports and entertainment and construction. He says low oil prices will likely put a damper on the company’s topline growth, but its lean cost structure will drive increasing its bottom line, leading to profitability by fiscal 2017.

Kwan says his price target is equal to 2.0x his fiscal 2017 sales estimate and DCF value. He says this target multiple is at a discount to both Cortex’s industry peers and its Canadian comparables.

“Cortex is nearing an inflection point as they edge closer to (sustainable) profitability, a key catalyst in our view,” says Kwan. “As Cortex continues to execute on its growth plan and profitability levels improve, the significant valuation gap vs. the peer group should narrow in our view.”

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